In this post, I talk about the challenges the traditional “on-prem” software companies face in transitioning to cloud and subscription based business model. While subscription business models are impacting every industry, I’d focus the post on B2B software companies only.
As traditional on-prem companies such as VMware, Microsoft, SAP, Oracle evolve to cloud and subscription based business models, they have been creating new “Customer Success” functions in line with the prevalent model at SaaS companies such as Salesforce. In these companies, I have seen people talk about customer success and customer obsession interchangeably . The way I look at it is – Customer Success is a function while Customer Obsession is a culture. Just having a customer success function in an organization doesn’t make you customer obsessed until you boot the culture.
Nobody knows this better than Jeff Bezos who’s formula for success, I’d argue, is rooted in the “customer obsessed” culture he has built across Amazon. More on Jeff and Amazon later.
Apple is another company that has built an “emotional loyalty” among its customer base by how they build/design/package products, and drive the experience through its retail stores and Genius Bar.
Let’ start with the basics. If you aren’t familiar with customer success as a function prevalent in SaaS companies and the genesis of customer success at SalesForce, Gainsight folks have written a book on Customer Success that is an easy read. The key idea behind customer success for SaaS platforms, with subscription based business models, is to drive active usage and adoption of new features. The assumption is – the more the usage, the less the risk of churn and the more value the vendor can charge by upselling new features/capabilities. The book does a pretty good analysis of why on-prem models didn’t need “customer success” function, and therefore the companies operating in the on-prem models optimized their culture and activities differently to serve shareholders the best.
For companies that started with a SaaS model, it was relatively easier to have customer success as a foundational building block of the corporate culture. In other words, there was no cultural baggage they had to carry from on-prem world. However, for traditional on-prem companies, it isn’t going to be an easy transition as acknowledged by Satya Nadella as he perceives cultural transformation of Microsoft as his job#1.
So the real question is – if the traditional on-prem business model companies have to achieve greatness, what do they need to do?
There is a lot of material out there that talks about “sustainable competitive advantage”. In one of my MBA classes many years ago, we reviewed the HBR case study of Southwest Airlines. The thing that stuck with me from that study was – Southwest Airlines’ sustainable competitive advantage doesn’t stem from a single plane type, short legs, fast gate turnaround etc. Anyone can copy that model and many airlines actually did try to copy. Yet, Southwest is still going strong. Why ? The sustainable advantage as the study concludes, was their HR system – the type of people they hire and their HR practices.
Jim Collins in his book Good to Great discusses the importance of “first who then what”. Get the right people on the bus and wrong people off the bus. It is the people and the mindset they bring in, drives the company.
Now let’s look at Amazon, one of the most successful companies of this decade. What’s their sustainable competitive advantage ? Many articles such as this one will tout – delivery network, technology powered warehouses, size and scale of user base etc. as pillars of sustainable competitive advantage. I’d argue, it is the “customer obsessed” culture that Jeff has built from ground up, is their sustainable advantage. This applies to all the businesses Amazon is in, as the same leadership principle #1 “start with customer and work backwards” applies to everything they do. They don’t need to have a “customer success” function, as customer obsession is ingrained in the culture.
So the first challenge leaders need to address, is the people.
Besides people, the leaders need to think about other elements of the culture. Just as DevOps is a cultural change in how software is built and deployed, breaking the silos between developers and operations, there is a new “FieldEng”(I just coined this term) culture that needs be built where the field people and engineering are collaborating to define, build, and deploy new capabilities in rapid iterations. Everyone in this new culture is measured only on one thing – how are they driving customers to succeed, and have similar or well aligned compensation plans. Quota driven incentive models which made sense in the on-prem world, has to give way to a culture driven by measurable customer outcomes. This will motivate field folks to share ideas on improving products and engineering folks to drive adoption of features in a collaborative innovation cycle that starts with customer. This is the second challenge leaders need to address.
Why is having a customer success as a function not good enough to make you a “great company” in the subscription economy ? This is because customer success metrics are internal indicators of success but don’t necessarily map 100% to how customers measure their own success. As a leader of the company, you need to boot the culture and reward systems to truly measure success by how customers’ measure their success (or outcomes they aspire for) by utilizing your product/service. That is the only path to greatness.